Rainbow Tours S.A.'s (WSE:RBW) 30% Share Price Surge Not Quite Adding Up

Rainbow Tours S.A. (WSE:RBW) shares have continued their recent momentum with a 30% gain in the last month alone. The last month tops off a massive increase of 192% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Rainbow Tours' P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Hospitality industry in Poland is about the same. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Rainbow Tours

How Rainbow Tours Has Been Performing

Recent times have been advantageous for Rainbow Tours as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Rainbow Tours.

Is There Some Revenue Growth Forecasted For Rainbow Tours?

In order to justify its P/S ratio, Rainbow Tours would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 38% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 15% per annum over the next three years. That's shaping up to be materially lower than the 80% each year growth forecast for the broader industry.

In light of this, it's curious that Rainbow Tours' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On Rainbow Tours' P/S

Rainbow Tours appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Given that Rainbow Tours' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Rainbow Tours that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.